Employee Benefits-Seventh Circuit Finds That A Plaintiff Is Entitled To Monetary Damages, But Not A Statutory Penalty, For The Failure To Provide A Timely COBRA Notice

In Gomez v. St. Vincent Health, Inc., No. 10-2379 (7th Cir. 2011), the two plaintiffs brought suit against a plan administrator, St. Vincent Health, Inc. (the “Company”), for (among other things) the statutory penalty and damages arising out of the failure to provide them with timely notices pertaining their rights under COBRA. The district court denied their request for the statutory penalty, and awarded damages to only one of the plaintiffs. The plaintiffs appealed.

One plaintiff, Gomez, left her job on November 30, 2004. She had health care and dental coverage, which continued until December 31, 2004. Under COBRA, Gomez was eligible to extend her health care and dental coverage for eighteen months by paying monthly premiums. She should have received a notice describing her rights under COBRA (a “COBRA Notice”) by January 13, 2005. However, she did not receive a mailed COBRA Notice until approximately June 22, 2006, when it was too late to elect the extended coverage. Gomez testified, however, that she would not have elected to extend her health care and dental coverage, because she could not have afforded the monthly premiums.

The second plaintiff, Barnett, left her job on November 28, 2004. She had health care, dental, and vision coverage that likewise continued until December 31, 2004. She should have received a COBRA Notice by January 11, 2005. However, she did not receive a mailed COBRA Notice until June 25, 2006, again, too late to elect the extended coverage. Unlike Gomez, Barnett testified that she would have elected to pay the premiums to extend her coverage. Her monthly COBRA premiums would have been $304.10 for health insurance, an additional $33.54 for dental benefits, and an additional $7.98 for vision benefits. Barnett claimed that she paid approximately $700 for prescription medications during the period between leaving her job and becoming covered by a health insurance program through her new employer in February 2005. She also provided evidence showing she incurred $648 of expenses for vision care between November 2004 and December 2005. She contends that she would not have incurred $940 in out-of-pocket health care expenses if she had received the required COBRA Notice on time.

As to the damages, the district court had awarded Barnett $396 in damages, the difference between her prescriptions costs ($700) and the premium she would have paid in order to extend her health coverage ($304). The Seventh Circuit Court of Appeals (the ” Appellate Court”) found that this award was appropriate, as monetary damages based on section 502(c)(1) of ERISA, which provides for “such other relief”. Was she entitled to another $544 to compensate her for the vision-care expenses she sustained? The Appellate Court said no, since her testimony did not establish the specifics as to the amount that would compensate her for her losses. Further, the district court found that Gomez is not entitled to any damages, because she did not substantiate any medical expenses incurred, and would not have elected to extend her health coverage even if she had received a timely COBRA Notice. The Appellate Court agreed with this finding.

The Appellate Court noted that, because the Company did not provide the plaintiffs with a timely COBRA notice, a court has the discretion to hold the Company liable for a statutory penalty, of up to $110 a day from the date of the violation, under section 502(c)(1) of ERISA. The district court declined to impose the penalty, however, noting that neither plaintiff was significantly prejudiced by the delay in notification, that there was no indication of bad faith (such as a misrepresentation or willful delay in request for information) or gross negligence, and that the Company offered to provide retroactive coverage through a payment plan. The Appellate Court agreed, adding that the Company was not required to have an oversight system in place to ensure compliance with COBRA. As such, the Appellate Court affirmed the district court’s decision that the penalty should not be imposed.